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Why CFOs Should Watch Apple, Google ... and FRANDs

o Jonny Evans
08.02.2012 kl 23:59 | CFOworld (US)

What's in a FRAND? Everything, it turns out, as the increasingly bitter smartphone wars reveal that -- when it comes to patented technologies used within industry standards -- not everyone is playing according to the rules.

 

What's in a FRAND? Everything, it turns out, as the increasingly bitter smartphone wars reveal that -- when it comes to patented technologies used within industry standards -- not everyone is playing according to the rules.

In the Apple-versus-everybody camp, you see those who control industry standards patents attempting to impose what appear to be iniquitous terms against some of their competitors.

This is what has led the European Commission to launch an investigation against Samsung, and what has caused Motorola to attempt to steal more than 2% of Apple's iPhone income, in exchange for that company's use of the IP contained within established industry standards. That's a huge problem for Apple, and also exposes a huge flaw in the way the patent system works.

R&D innovation shows us the best way to survive recession is to continue to develop new ideas, new products and to grow new business.

Patent law exists to protect any company that has developed new ideas, but there's a category of patent -- a so-called "FRAND patent agreement" (Fair, Reasonable and Nondiscriminatory) in which industry players agree to make their IP available to everyone else in exchange for their inclusion within an industry standard, 3G, for example.

Thing is, people aren't keeping their promises.

This has led Apple to appeal to the European Telecommunications Standards Institute (ETSI), asking that it work to enforce a consistent licensing scheme for the many patents you need to make mobile devices. The company clearly thinks an attempt to harmonize the way the licensing works would benefit itself, but such standardization would in truth benefit everyone.

"It is apparent that our industry suffers from a lack of consistent adherence to FRAND principles in the cellular standards arena," Apple's letter states, as reported by Foss Patents.

It doesn't matter what industry you are in; you need a transparent patent licensing procedure when it comes to licensing elements of what is an industry standard.

Transparency. It isn't right that some IP owners with FRAND technologies to license act in a partial manner when it comes to agreeing such licenses. As Florian Mueller puts it: "The problem with unreasonable people or companies is never that they want to be unreasonable by their own standards. It's always that they have a distorted coordinate system within which they consider something reasonable that truly reasonable people consider unreasonable. That's why it's meaningless to promise reasonableness without particularity."

Apple is demanding:

  • Appropriate royalty rates.
  • A common royalty base.
  • No injunction: Given agreed royalty rates for licensing this IP, Apple argues that injunctions shouldn't be supported while negotiations are taking place.

This is a big deal, because Google is purchasing Motorola Mobility. That company holds a host of patents that relate to mobile technologies, many under FRAND licensing agreements. But Motorola's recent actions suggest a partial approach to FRAND. In an attempt to avoid regulatory oversight, Google will this week write to dozens of different standards organizations to reassure them that it will handle FRAND negotiations "fairly". Just Google the word, and you'll be surprised at its many potential meanings.

CFOs in other industries need to take notice of this conflict. A commitment to transparent FRAND licensing should be good for everyone, and those who are attempting to use their FRAND IP as an anti-competitive tool are consolidating a system that could arguably threaten your business, just as much as it threatens Apple.

Keywords: Business Management  Legal  
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